Want lower gas prices? Cut the U.S. budget deficit

By Money Matters Editors

Americans do a lot of complaining about the price of gasoline. What’s one good way to lower gas prices? Cut the U.S. budget deficit! You read correctly - cut the budget deficit. Here’s why:

Oil has many roles in our modern world. It is, as everyone knows, the primary fuel for transportation in the developed and now in the developing world, too. In the United States, it’s clearly the most important commodity, given the nation’s enormous gasoline use, and consider this staggering statistic: one of every 10 barrels of oil in the world is used to make gasoline for U.S. motorists. Astounding. Talk about a car culture.

But what many motorists – and some investors – do not know is that oil has other roles in the modern world, namely as an asset for investment, hedge, and related funds. Further, some investors buy oil as an inflation hedge. And it’s those two, latter roles, as an asset and as an inflation hedge, that explain the connection between the U.S. budget deficit and price of gasoline in the U.S.